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The operations function is one of the three core functions of any organization. These are:
● the marketing (including sales) function – which is responsible for communicating the organization’s services
and products to its markets in order to generate customer requests;
● the product/service development function – which is responsible for coming up with new and modified
services and products in order to generate future customer requests;
● the operations function – which is responsible for the creation and delivery of services and products based
on customer requests.
✽ Operations principle
Operations managers need to co-operate with other functions to ensure effective organizational performance.
✽ Operations principle
All processes have inputs of transforming and transformed resources that they use to create products and
services.
INPUTS: materials, information, customers
✽ Operations principle
Transformed resource inputs to a process are materials, information or customers.
✽ Operations principle
All processes have transforming resources of facilities (equipmen
TRANSFORMATION: facilities, staff
OUTPUT: products, services
✽ Operations principle
The way in which processes need to be managed is influenced by volume, variety, variation and visibility.
✽ Operations principle
Operations and processes can (other things being equal) reduce their costs by increasing volume, reducing
variety, reducing variation, and reducing visibility.
✽ Operations principle
Operations management activities can be grouped into four broad categories, directing the overall strategy of
the operation, designing the operation’s products, services and processes, planning and controlling delivery,
and developing performance.
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❯ Why is operations management important in all types of organization?
● Operations management uses the organization’s resources to create outputs that fulfi l defi ned market
requirements. This is the fundamental activity of any type of enterprise.
● Operations management is increasingly important because today’s business environment requires new
thinking from operations managers.
✽ Operations principle
All operations should be expected to contribute to their business by controlling costs, increasing revenue,
reducing risks, making investment more effective and growing long-term capabilities
✽ Operations principle
Operations performance objectives can be grouped together as quality, speed, dependability, flexibility and
cost.
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Dependability saves time
Dependability saves money
Dependability gives stability
Improving productivity
One obvious way of improving an operation’s productivity is to reduce the cost of its inputs while maintaining
the level of its outputs.
● Setting broad objectives that direct an enterprise towards its overall goal.
● Planning the path (in general rather than specific terms) that will achieve these goals.
● Stressing long-term rather than short-term objectives.
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● Stressing long-term rather than short-term objectives.
● Dealing with the total picture rather than stressing individual activities.
● Being detached from, and above, the confusion and distractions of day-to-day activities.
DESIGN
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❯ What objectives should process design have?
● The overall purpose of process design is to meet the needs of customers through achieving
appropriate levels of quality, speed, dependability, fl exibility and cost.
● The design activity must also take account of environmental issues. These include examination of the
source and suitability of materials, the sources and quantities of energy consumed, the amount and type
of waste material, the life of the product itself, and the end-of-life state of the product.
Little’s law
This mathematical relationship (throughput time = work-in-progress * cycle time) is called Little’s law. It
is simple but very useful, and it works for any stable process.
1. For example, suppose it is decided that in a new sandwich assembly and sales process, the average
number of customers in the process should be limited to around ten and the maximum time a customer
is in the process should be on average four minutes. If the time to assemble and sell a sandwich (from
customer request to the customer leaving the process) in the new process has been reduced to 1.2
minutes, how many staff should be serving?
That is, a customer should emerge from the process every 0.4 minutes, on average. Given that an
individual can be served in 1.2 minutes:
In other words, three servers would serve three customers in 1.2 minutes. Or one customer in 0.4
minute.
2. Every year it was the same. All the workstations in the building had to be renovated (tested, new
software installed, etc.) and there was only one week in which to do it. The one week fell in the middle
of the August vacation period when the renovation process would cause minimum disruption to normal
working. Last year the company’s 500 workstations had all been renovated within one working week (40
hours). Each renovation last year took on average 2 hours and 25 technicians had completed the process
within the week. This year there would be 530 workstations to renovate but the company’s IT support
unit had devised a faster testing and renovation routine that would only take on average 1 and a half
hours instead of 2 hours. How many technicians will be needed this year to complete the renovation
processes within the week?
Last year:
Work-in-progress (WIP) = 500 work stations
Time available (Tt) = 40 hours
Average time to renovate = 2 hours
Therefore throughput rate (Tr) = 1 / 2 hours per technician = 0.5N where N = Number of technicians
Little's law:
WIP = Tt * Tr 500 = 40 * 0.5N N = 500 / 40 * 0.5 = 25 technicians
This year:
Work-in-progress (WIP) = 530 workstations
Time available = 40 hours
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Time available = 40 hours
Average time to renovate = 1.5 hours
Throughput rate Tr = 1 / 1.5 per technician = 0.67N where N = Number of technicians
Little's law:
WIP = Tt * Tr
530 = 40 * 0.67N
N = 530 / 40 * 0.67 = 19.88 (say 20) technicians
Supplier's supplier -> Supplier (internal or external) -> Company -> Customer (internal or external) ->
Customer's customer
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THE EFFECT OF SUPPLY AND DEMAND ON PLANNING AND CONTROL
✽ Operations principle
Planning and control systems should be able to cope with uncertainty in demand.
Responding to demand
It is clear then that the nature of planning and control in any operation will depend how it responds to
demand, which is in turn related to the type of services or products it produces.
✽ Operations principle
The planning and control activity will vary depending on how much work is done before demand is
known -> MTS, ATO, MTO
Loading
Loading is the amount of work that is allocated to a work centre.
Finite loading: Finite loading is an approach which only allocates work to a work centre (a person, a
machine, or perhaps a group of people or machines) up to a set limit.
● it is possible to limit the load
● it is necessary to limit the load
● the cost of limiting the load is not prohibitive
Infinite loading: Infinite loading is an approach to loading work which does not limit accepting work, but
instead tries to cope with it.
● it is not possible to limit the load
● it is not necessary to limit the load
● the cost of limiting the load is prohibitive
Sequencing
When work arrives, decisions must be taken on the order in which the work will be tackled. This activity
is termed ‘sequencing’.
Physical constraints: The physical nature of the inputs being processed may determine the priority of
work. For example, in an operation using paints or dyes, lighter shades will be sequenced before darker
shades. Sometimes the mix of work arriving at a part of an operation may determine the priority given
to jobs. For example, when fabric is cut to a required size and shape in garment manufacture, the
surplus fabric would be wasted if not used for another product.
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surplus fabric would be wasted if not used for another product.
Customer priority: Operations will sometimes use customer priority sequencing, which allows an
important or aggrieved customer, or item, to be ‘processed’ prior to others, irrespective of the order of
arrival of the customer or item. This approach is typically used by operations whose customer base is
skewed, containing a mass of small customers and a few large, very important customers. Some banks,
for example, give priority to important customers.
Due date (DD): Prioritizing by due date means that work is sequenced according to when it is ‘due’ for
delivery, irrespective of the size of each job or the importance of each customer.
Last in first out (LIFO): Last in first out (LIFO) is a method of sequencing usually selected for practical
reasons. For example, unloading an elevator is more convenient on a LIFO basis, as there is only one
entrance and exit.
First in first out (FIFO) : For example, UK passport offices receive mail, and sort it according to the day
when it arrived. They work through the mail, opening it in sequence, and process the passport
applications in order of arrival.
Longest operation time (LOT): although longest operation time sequencing keeps utilization high, this
rule does not take into account delivery speed, reliability or flexibility. Indeed, it may work directly
against these performance objectives.
Shortest operation time first (SOT): Most operations at some stage become cash constrained. In these
situations, the sequencing rules may be adjusted to tackle short jobs first; However, it may adversely
affect total productivity and can damage service to larger customers.
Judging sequencing rules: All five performance objectives, or some variant of them, could be used to
judge the effectiveness of sequencing rules. However, the objectives of dependability, speed and cost
are particularly important.
Scheduling
✽ Operations principle
An operation’s planning and control system should allow for the effects of alternative schedules to be
assessed
CAPACITY MANAGEMENT
✽ Operations principle
Any measure of capacity should reflect the ability of an operation or process to supply demand
✽ Operations principle
Capacity management decisions should reflect both predictable and unpredictable variations in capacity
and demand.
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circumstances.
Seasonality of demand
Most markets are influenced by some kind of seasonality – that means that they vary depending on the
time of year. It may be demand seasonality or supply seasonality, but in many organizations, capacity
management is largely about coping with these seasonal fluctuations. These fluctuations in demand or
supply may be reasonably forecastable, but some are usually also affected by unexpected variations in
the weather and by changing economic conditions
Mixed plans
Most operations managers are required simultaneously to reduce costs and inventory, to minimize
capital investment, and yet to provide a responsive and customer-orientated approach at all times. For
this reason, most organizations choose to follow a mixture of the three approaches
Yield management
In operations which have relatively fixed capacities, such as airlines and hotels, it is important to use the
capacity of the operation to maximize its potential to generate profit. One approach used by such
operations is called yield management. Yield management is especially useful where:
● capacity is relatively fixed;
● the market can be fairly clearly segmented;
● the service cannot be stored in any way;
● the services are sold in advance;
● the marginal cost of making a sale is relatively low.
Strategies:
● Over-booking capacity
● Price discounting
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● Price discounting
● Varying service types
INVENTORY MANAGEMENT
Inventory is a term we use to describe the accumulations of materials, customers or information as they
flow through processes or networks.
Inventories are often the result of uneven flows.
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Holding costs = h*y/2
Ordering costs = K*D/y
CT = h*y/2 + K*D/y
y* = sqrt(2*K*D/h)
✽ Operations principle
For any stock replenishment activity there is a theoretical ‘optimum’ order quantity that minimizes total
inventory-related costs.
3. A building materials supplier obtains its bagged cement from a single supplier. Demand is reasonably
constant throughout the year, and last year the company sold 2,000 tonnes of this product. It estimates
the costs of placing an order at around £25 each time an order is placed, and calculates that the annual
cost of holding inventory is 20 per cent of purchase cost. The company purchases the cement at £60 per
tonne. How much should the company order at a time?
After calculating the EOQ the operations manager feels that placing an order for 91.287 tonnes exactly
seems somewhat over-precise. Why not order a convenient 100 tonnes?
The extra cost of ordering 100 tonnes at a time is £1,100 - £1095.45 = £4.55. The operations manager
therefore should feel confident in using the more convenient order quantity.
Both demand and the order lead time are likely to vary to produce a profile which looks something like
that in Figure 12.12 . In these circumstances it is necessary to make the replenishment order somewhat
earlier than would be the case in a purely deterministic situation.
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Continuous and periodic review
The approach we have described to making the replenishment timing decision is often called the
continuous review approach. This is because, to make the decision in this way, there must be a process
to review the stock level of each item continuously and then place an order when the stock level reaches
its re-order level. The virtue of this approach is that, although the timing of orders may be irregular
(depending on the variation in demand rate), the order size (Q) is constant and can be set at the
optimum economic order quantity. Such continual checking on inventory levels can be time-consuming.
An alternative and far simpler approach, but one which sacrifices the use of a fixed (and therefore
possibly optimum) order quantity, is called the periodic review approach. Here, rather than ordering at
a predetermined re-order level, the periodic approach orders at a fixed and regular time interval. So the
stock level of an item could be found, for example, at the end of every month and a replenishment order
placed to bring the stock up to a predetermined level. This level is calculated to cover demand between
the replenishment order being placed and the following replenishment order arriving.
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● Order processing and communication
^Fazer para produtos dependentes e coordenar LTs e liberações de ordem para atender à demanda.
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